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Last week, it was party time over at Tesla HQ. The company had just launched a hugely successful Initial Public Offering that took in $260 million and saw its stock price close several dollars above the original sale price. A week later, everything’s turned upside down.
Tesla had planned to sell 11.1 million shares at $14 to $16 each, but revised its strategy at the last minute and bumped its sale to 13.3 million shares at $17 each, which would earn the company $226 million rather than the $178 million it originally anticipated. On the first day of trading, the company would actually sell 15.3 million shares and the price of the hot new stock briefly eclipsed $30 before closing at $23.83, still well above the initial offering price, netting the company $260 million in much-needed cash.
Since then, though, the stock has only gone down in value. By the closing bell Tuesday, Tesla shares had dropped below their $17 offering price to $16.11, their fourth day of losses in a row. As of this writing, the share price has slipped an additional five percent to $15.24. In total, the shares have lost more than 41 percent of their value since the June 30 closing, completely eliminating their brief 41 percent rally on opening day. The Nasdaq Composite index the stock is listed on, meanwhile, is up 2 percent today.
“They brought this thing into a market that was not rewarding hype,” Michael Holland, chairman of Holland & Co. told Businessweek. “The stock did get its pop, and now it’s plagued by the reality of the marketplace. The reality of the marketplace is that people aren’t paying for dreams and visions.”
“The company is a great concept with relatively weak fundamentals,” said Josef Schuster, founder of IPOX Capital Management LLC and manager of the Direxion Long/Short Global IPO Fund.
The falling price of Tesla’s stock could spell trouble for the company, which is planning on using the proceeds from its IPO to fund development of its upcoming Model S sedan as well as a factory to build the car. Nearly caught up with orders for its $109,000 Roadster sports car, the company has been counting on the IPO, a $465 million loan from the U.S. Department of Energy, and selling carbon credits and battery packs to other automakers to shore up its finances. The company has never posted an annual profit and posted only one quarterly profit since its founding in 2003. The company’s net loss grew to $29.5 million in the first quarter of 2010, nearly double its 2009 first quarter loss. Tesla is expected to continue to lose money until at least 2012 when the Model S debuts.
The falling stock price is also a serious concern for Tesla’s eccentric CEO, Elon Musk. Shortly before the IPO, it was reported that Musk was essentially broke and living on loans from friends, having sunk his entire fortune into Tesla and his two other start-up companies, Space X and SolarCity. Musk was personally counting on the IPO to replenish his exhausted personal coffers and a falling stock price certainly won’t help. On paper, the values of his shares soared as high as nearly $800 million, but much of it has been erased and his 26.89 million shares were valued at roughly $433 million as of close yesterday, $24 million less than at the close of the IPO. Still, it’s double what Musk made selling his first company, PayPal, but this time he can’t claim it all. The terms of the DoE loan require that Musk retain at least 65 percent of his shares in the company or the loan will default.
Source: Businessweek
Ouch. Musk still made some $15 million selling almost one million shares at the IPO however. So he isn’t *broke* anymore.